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spk14: Good day, and thank you for standing by. Welcome to the Step-N Company first quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Luis Rojo, CFO. Please go ahead.
spk12: Good morning, and thank you for joining Stephan Company's first quarter 2024 financial review. Before we begin, please note that information in this conference call contains forward-looking statements, which are not historical facts. These statements involve risk and uncertainties that could cause actual resource to defer material, including but not limited to prospects for foreign operations, global and regional economic conditions, and factors detailing our security and exchange commission filings. In addition, this conference call will include discussion of adjusted net income, adjusted EBITDA, and free cash flow, which are non-GAAP measures. We provide reconciliations to the compatible GATT measures in the earnings presentation and press release, which we have made available at www.stepan.com under the investor section of our website. Whether you're joining us online and over the phone, we encourage you to review the investor slide presentation. We make these slides available at approximately the same time as when the earnings release is issued, and we hope that you find the information and perspective helpful. With that, I would like to turn the call over to Mr. Scott Benz, our President and Chief Executive Officer.
spk06: Good morning, and thank you all for joining us today to discuss our first quarter 2024 results. I plan to share highlights from our first quarter performance, and will also share updates on our key strategic priorities, while Luis will provide additional details on our financial results. The company reported first quarter adjusted EBITDA of $51.2 million, up 5% year-over-year. Global sales volume was up 1% year-over-year. Volume weakness in the agricultural market due to continued inventory destocking and lower phthalic and hydride volumes due to ongoing operational issues at our mill sale site mostly offset the strong recovery in volumes across our other core markets. Global sales volume, excluding the impact of agricultural and PA, was up 4%. Surfactants experienced double-digit volume growth in personal care, in oil field and markets, and with our distribution partners. As expected, Latin American surfactant volumes grew strong double digits as we recovered volumes in Mexico. First quarter sales volume in Mexico was a record. Overall, volumes in our global consumer laundry and cleaning and our institutional cleaning businesses have stabilized, and we believe the stocking has run its course. Within polymers, rigid and specialty polyols grew mid-single digits, while specialty products volume was up double digits. From a company perspective, margins were in line with expectations despite unfavorable product mix. Net sales in the first quarter of 2024 decreased 15% year over year, primarily due to lower selling prices that were mainly attributable to the pass-through of lower raw material costs and less favorable product mix. These lower selling prices were partially offset by a 1% increase in global sales volume, as mentioned above, and the favorable impact of foreign currency translations. We generated positive free cash flow of $11.4 million as capital expenditures returned to historical levels, and these results give us confidence that we will close 2024 with positive free cash flow. The company is on track to deliver our $50 million cost reduction goal for 2024 through disciplined efforts in supply chain and workforce productivity actions taken in the last quarter of 2023. We expect these reductions to help offset higher operating costs related to operational interruptions at our mill sale site and pre-commissioning expenses at our new alcoxylation facility in Pasadena, Texas. During the first quarter of 2024, the company paid $8.5 billion in dividends to shareholders. The company did not repurchase any company stock during the first three months of 2024 and has $125 million remaining under the share repurchase program authorized by our board of directors. Yesterday, our Board of Directors declared a quarterly cash dividend on Stephan's common stock of 37.5 cents per share, payable on June 14, 2024. Stephan has paid and increased its dividend for 56 consecutive years. With the volume performance in several of our end markets delivering strong growth, we remain confident in the strength and diversity of our business and its ability to generate cash that will allow us to continue to invest in our business and return cash to our shareholders. Luis will now share some details about our first quarter results.
spk12: Thank you, Scott. My comments will generally follow the slide presentation. Slide five shows the total company net income bridge for the first quarter compared to last year's first quarter and break down the decrease in adjusted net income. Because this is net income, the figure is not here on an after-tax basis. First quarter 2024 adjusted net income was $14.7 million, or $0.64 per dilute share, versus $16.4 million, or $0.71 per dilute share, for the first quarter of last year. The adjusted net income reduction was driven by a higher effective tax rate compared to 2023. We are projecting a higher effective tax rate for 2024 due to the anticipated disallowance of a GILTI reduction and foreign tax credits. resulting from the expected election of bonus depreciation for our Pasadena capital investments. Slide 6 shows the total company adjusted EBITDA bridge for the first quarter compared to last year's first quarter. Adjusted EBITDA was $51.2 million versus $48.7 million in the prior year, a 5% increase year-over-year. We will cover each segment in more detail, but to summarize, we deliver adjusted EBITDA growth in surfactants and specialty products, partially offset by global polymers. Lower corporate expenses also contributed to the adjusted EBITDA growth. Slide 7 focused on surfactant segment results. Surfactant net sales were $391 million for the quarter, a 16% decrease versus the prior year. Selling prices were down 18% primarily due to the path through of lower raw material costs, less favorable product mix, and competitive pricing pressures in Latin America and Europe. Volume was flat year over year. We delivered a strong double-digit growth in personal care from our low $14,000 investments and in the oil field and market. We also grew volume in the construction and industrial solution business and with our distribution partners. Latin America surfactant volume also grew a strong double digit as we continue recovering the business. This growth was offset by lower demand within the agricultural end market due to continued customer and channel inventory stocking. Foreign currency translation positively impacted net sales by 2%. Surfactant adjusted EBITDA for the quarter increased $1.5 million, or 4% versus the prior year. The increase was driven by the margin improvement that was partially offset by pre-operating expenses at the company's new acoxalation production facility being built in Pasadena, Texas, and expenses associated with operational interruptions at the Millsdale plant site. Excluding these one-time expenses, adjusted EBITDA grew double digits in the surfactant business. Now, on slide A, polymer net sales were $146 million for the quarter, a 10% decrease versus the prior year. selling prices decreased 14% primarily due to the bathroom of lower raw material costs. Volume increased 1% in the quarter, driven by a 4% increase in global rigid polyols and 7% increase in specialty polyols. This excellent volume growth was partially offset by lower PA volumes due to the mil-cell operational interruption. Rigid polyols experienced growth in all regions. Foreign currency translation positively impacted net sales by 3%. Polymer adjusted EBITDA decreased $1.9 million, or 10%, primarily due to the previous communicated higher expenses due to the mill cell operational issue. Excluding these one-time expenses, adjusted EBITDA grew in the polymers business. Finally, specialty product sales were $15 million for the quarter, a 33% decrease versus the prior year. Polymer was up double D versus the prior year, while adjusted EBITDA increased $1.9 million, or 49%. The increase in adjusted EBITDA was primarily due to both higher unit margins and volume within the MCT product line. Turning to slide 9, we continue making progress on our cash position. For the first quarter, cash from operation was $42 million, and free cash flow was positive at $11.4 million, up $176 million versus 2023. We continue optimizing our inventory levels, and we were able to reduce another $8 million. During the quarter, we deployed $38 million in CapEx investments and dividends. Now, on slide 10 and 11, Scott will update you on our strategic priorities and capital investments.
spk06: Thanks, Luis. I'll focus my comments on our cost initiatives, business strategy, and the progress of our major capital investments. The cost reduction program initiated last year, along with additional productivity and cost out initiatives underway in 2024, centered around improved operational performance across our supply chain network, are expected to deliver $50 million in pre-tax savings in 2024. As of the first quarter, the company was on track to deliver its $50 million cost out goal and recognized $18 million in pre-tax savings. This was largely offset by the incremental expenses related to the Millsdale operational issue, commissioning expenses in our new Pasadena site, higher operating expenses related to the new loan 1-4 dioxane manufacturing process, and overall labor cost inflation. We are encouraged by the volume performance in several of our end markets delivering growth. Surfactants delivered strong volume growth in personal care, oil field, construction and industrial solution end markets, and with our distribution partners. Latin American surfactants delivered strong double-digit growth with record volumes in Mexico. Rigid and specialty polyols volume grew 4% and 7% respectively, while specialty products volume was up double digits. Our large laundry and cleaning consumer and institutional cleaning businesses have stabilized, and we expect gradual and modest growth in the future. Our customers will always remain at the center of our strategy and innovation. Our longstanding Tier 1 customers value our technical capacity and the ability to manufacture and deliver quality products at the scale they need. We continue to diversify our customer base by expanding our reach to Tier 2 and Tier 3 customers who highly value the technical support and services that Stepping can provide. During the first quarter of 2024, we added approximately 400 new Tier 2 and Tier 3 customers, increasing the segment volumes versus the prior year. Our technical collaborations are increasingly focused on helping our customers make their product portfolio transition towards a more sustainable future, and we are happy to be on this journey with them. Our diversification strategy in Tier 2 and Tier 3 markets and functional markets, including agricultural and oilfield chemicals, continues to be a key priority for Stefan. Insulation remains a critical enabler of a more sustainable and energy-efficient world. our polymers business continues to focus on developing the next generation rigid polyol technologies that can increase the energy efficiency and cost performance of our customers' insulation products. Moving to slide 11, construction at our new alkoxylation production facility in Pasadena, Texas is approximately 90% complete, and we now expect the plant to start up in the fourth quarter of 2024 due to a contractor delay. The underlining alcoxylation business that supports the Pasadena investment, excluding the agricultural to stocking, continued its volume growth during the first quarter of 2024 at very attractive unit margins. After completing a three-year capital investment program last year, Stepin now has the largest installed low 1,4-doxane production capacity serving the North American merchant market. Our first quarter volumes grew strong double digits versus prior year, and volume should continue to ramp throughout the year as more customer and product qualifications are completed. As already reported in our February earnings call, our Millsdale site was impacted by a series of power disruptions combined with below freezing temperatures in January with the main impact to the thalic and hydride and polyol unit operations. All operations other than thalic and hydride have been in our back in production, and we were able to minimize uh supply disruptions to our polyol customers through our production network the pa unit experienced several restart challenges but has since been restarted and is producing product in addition to the power weather interruption we also experienced unplanned maintenance and operational issues with the millsdale wastewater treatment plant our team has been actively addressing these issues through infrastructure and process improvements these operational Issues impacted first quarter results primarily from higher maintenance and operational expense and higher tolling costs. We anticipate second quarter expenses related to these issues to be similar to the first quarter expenses. We anticipate to go back to normal and lower spending levels in the second half of the year. Looking forward, we believe sales volumes will continue to gradually improve due to the ongoing recovery in rigid polyols. and growth in surfactant volumes, including the expected recovery of the agricultural business in the second half of this year. We remain focused on delivering $50 million in pre-tax cost reductions to help offset inflationary pressures, the expenses associated with commissioning our new Pasadena alcoxylation assets, higher incentive-based compensation, and incremental expenses associated with the operational issues at Nosedale. Free cash flow should continue to improve versus prior year as we finish construction on our Pasadena investment and benefit from higher agricultural volumes in the second half of the year. Continued gradual growth in market volumes, improved operational performance, and our continued focus on cost reduction should position us to deliver full year adjusted EBITDA growth and positive free cash flow. We remain confident in our long-term growth and innovation initiatives. This concludes our prepared remarks. At this time, we would like to turn the call over for questions. DeeDee, please review the instructions for the question portion of today's call.
spk14: Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster.
spk00: And our first question comes from Vincent Anderson of Stiefel.
spk14: Your line is open.
spk09: Yeah. Good morning, gentlemen. Thanks. And apologies in advance if you've answered any of this. You guys are moving a little bit faster than I am today. But I wanted to start with the operating income and surfactants because it sounds like there was a lot of little issues here in the quarter, but the margins came in quite strong regardless. So Can you maybe just talk about what the big positives were, whether it was all fixed cost leverage or raw materials? And then kind of second to that, are there Tier 2, Tier 3, and oil field gains? Have those been enough to offset the mixed headwinds from agriculture?
spk12: Hi, Vincent. This is Luis. Look, as we said in our prepared remarks, adjusted EBITDA for surfactant was slightly off 4% versus last year. And actually, if you exclude the one-time expenses that we had because of the disruption in Mildale, our adjusted EBITDA in surfactant is actually up double digits, which is a good testament of margin improvement. So you saw volumes flat in the in surfactants overall flat with several places growing double digits, but overall volumes flat, so the driver of the adjusted EBITDA growth is margins, despite the fact that ACT is a significant negative mix in the numbers. If you exclude the ACT-D stocking, our operating income, our adjusted EBITDA in this business will be up very, very strong double digits. So ACT is a negative income.
spk09: Okay. All right. Perfect. Thank you. I'm not sure exactly how to ask this one, but I appreciate that Millsdale is a very large, complex plant. It's one of your older plants. I'm trying to understand what opportunities there are maybe within your scheduled turnarounds that you would have an opportunity to really go deep into that plant and try to tie up some of these loose ends that seem to crop up. It feels like every year at this point, whether it's power or now wastewater, I'm just trying to kind of understand where that plant is in that kind of cycle of shorter-term maintenance needs and maybe longer-term projects that you haven't had an opportunity to address.
spk06: Yeah, great question, Vincent. First of all, we do have a long-term infrastructure reinvestment plan for that site. And we do follow and execute against that every year. The power disruptions that seem to be more frequent over the last three or four years, that's a real issue that we're working on with our external power providers. As you know, in this country, the energy infrastructure is aging and there is more reinvestment. So our primary focus is to improve the quality and reliability of the power that we get into our Millsdale site. And that's actively being worked on. With regards to our other infrastructure assets at the site, the wastewater treatment plants, I would say it's an unexpected maintenance outage. We do do turnarounds on all of our infrastructure assets. This one kind of creeped up unexpectedly. We're managing it and should be rectified here in the second quarter. So it is one of our older sites in our global network. It is very large, and it's a main focus for us to continue to improve and then reinvest for improved reliability for our customers.
spk09: All right. That's excellent. Thank you. And just one last one. I'm just trying to get a feel for, you know, do your polyol volumes or at the very least your demand indications, given some of the disruptions this quarter, do you feel like they're tracking what you're seeing your customers put out there in terms of installation volumes? Or is there maybe still a little bit of a disconnect in terms of how they're managing inventory or timing of these projects?
spk06: I think directionally the answer is yes. I think some of the customers that may have reported earlier, some of their growth may be a little disconnected from ours due to things that they're doing with their marketing programs. But overall, I think we're pleased that our volume is tracking. It's on a recovery path. There seems to be a lot of pent-up demand for re-roofing projects. And I think if we can clear some of the operational issues we have, you'll see our numbers track more closely to what you may be expecting from the customer base release.
spk12: And the growth in polymers was broad-based with all the regions growing and also specialty polymers growing plus 7%, which is pretty strong.
spk09: Excellent. All right. Thanks. That's all from me, guys.
spk00: Thank you. One moment for our next question.
spk14: And our next question comes from Mike Harrison of Seaport Research Partners. Your line is open.
spk17: Hi. Good morning. Good morning, Mike. Good morning.
spk03: Apologies if I missed this, but did you quantify the impact of the Millsdale outage in Q1 overall and how that was split between the polymers and surfactant segments?
spk12: Yeah, Mike, remember in February we said we were expecting around $5 million of pre-tax income. We included in the release, I know it's early, we included the exact number, $5.8 million was the impact and call it half and half between the businesses. And as Scott put in his remark, we're expecting kind of the same in Q2.
spk03: All right, thank you for that. And then I was also curious, just on the price mix number, that minus 18% was quite a bit weaker than we were anticipating. I guess what I'm trying to understand is when do you expect those price mix headwinds to stabilize? Maybe, you know, how much of that 18% decline was price? How much was mix? And related to that, if you are expecting ag demand to pick back up and be stocking to run its course in that ag business in the second half, how much does mixed recovery from ag help that price mix number as we get into the second half?
spk12: Yeah, no, great question, Mike. As you said, 18%, of course, the majority of that is pricing, and ag is still a big negative impact into that number. But you saw our cost of goods sold also down $100 million despite the increases in overhead. So raw material prices are going down significantly, more so on a percentage basis, than the price reduction that you saw. So that's how we are improving margins in the three businesses when you look at dollars per pound.
spk06: And, Mike, I'll add, you know, we're coming off a record 2023 first quarter ag business, so that price mix is definitely impacted this year from the ag to stocking. And, yes, it will be a significant improvement in the second half when the ag recovery –
spk03: And I guess just to follow up on that, you know, can you give a little bit of color on what your customers in the ag business are saying right now? I'm just trying to get a better sense of what gives you confidence or how confident you are that those volumes are going to start to pick up in the ag business in the second half.
spk06: Yeah, Mike, I'd say from a customer perspective, it's a little bit of a mixed bag, whether it will start in Q3 or Q4. But, you know, what we have to remember is, you know, the world's demand for food and protein will always remain. So this inventory, once it gets through the stocking phase, the demand at the farmer level is still there. So I think it's a matter of when, not if. And I'd say right now there's probably a 50-50 mix of Q3 versus Q4.
spk03: All right. And then the last question for me is just in terms of the outlook, you're pointing to adjusted EBITDA growth versus last year. Obviously, last year was unusually weak. But looking at where you were in the first quarter, this $51 million EBITDA number and presumably would have been $6 million higher without the Millsdale outage. Should we be modeling improvement from that level in Q2 and then further improvement in Q3 as we get past the Millsdale issues? I guess just any additional color you're willing to provide on the earnings Cadence from here, I think, would be helpful, given there are a lot of moving pieces in place.
spk12: So, yeah, yeah, Mike, and you know that we don't provide formal guidance for quarter for the quarter or for a year, but but and that's why we are trying to provide some perspective on. the expenses that we foresee in Q2. So you can model that in your second quarter. And then, of course, we all expect some improvement in the second half because of the ag recovery. I mean, we cannot hide that. I mean, we're saying we are expecting the recovery of ag, and ag is a good business for us. And, of course, we'll have a positive impact in our EBITDA in the second half versus the first half.
spk02: All right, that's helpful. Thank you.
spk14: Thank you. One moment for our next question. And our next question comes from Dave Storms of StoneGate. Your line is open.
spk08: Good morning. Good morning, Dave. Good morning. Just hoping we could touch on Latin America for a second. Great to see volumes coming up there. Can we expect pricing to follow, or is there still more focus on defending and capturing market share there?
spk06: Yeah, great question. Yeah, Dave, our priority was to recover the volumes. If you remember, we talked about competitive imports in the prior quarters. Our goal was to recover the share. So that remains our priority. There's hope over time that pricing will improve, but right now it's reestablishing the V-check.
spk08: Understood. Very helpful. And then just one more for me. On the customer acquisition environment, great to see that you picked up some more Tier 2 and Tier 3 customers. What is the contact to contract cycle looking like there? Is that improving, and how does that compare to
spk07: you know, trying to pick up obviously more tier one customers as well.
spk06: You know, the tier two, tier three customers, those tend to be the smaller customers around the world from a contracted basis that's really not contracted business. It's more transactional type of relationships, but You know, I think where we differentiate ourselves is the technical service. So when we help these customers put new formulations on the shelf, there is a sense of loyalty. But, you know, there's nothing that you can, you know, put under a contract umbrella saying that that's a fully stabilized business. But, you know, we had record volumes in Q1 within that customer segment, which we're pretty pleased with those results.
spk08: Understood. Thank you for taking my questions, and good luck in Q2. Thanks.
spk14: Thank you. At this time, I'd like to turn it back to Scott Behrens for closing remarks.
spk06: Thank you very much for joining us on today's call. We appreciate your interest in ownership and step in company, and please have a great day.
spk14: This concludes today's conference call. Thank you for participating, and you may now disconnect. Thank you. Bye. Thank you.
spk10: I'm Thank you. you
spk14: Good day, and thank you for standing by. Welcome to the Step N Company first quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Luis Rojo, CFO. Please go ahead.
spk12: Good morning, and thank you for joining Stepan Company's first quarter 2024 financial review. Before we begin, please note that information in this conference call contains forward-looking statements, which are not historical facts. These statements involve risk and uncertainties that could cause actual resource to defer material, including but not limited to prospects for foreign operations, global and regional economic conditions, and factors detailing our security and exchange commission filings. In addition, this conference call will include discussion of adjusted net income, adjusted EBITDA, and free cash flow, which are non-GAAP measures. We provide reconciliations to the compatible GATT measures in the earnings presentation and press release, which we have made available at www.stepan.com under the investor section of our website. Whether you are joining us online and over the phone, we encourage you to review the investor slide presentation. We make these slides available at approximately the same time as when the earnings release is issued, and we hope that you find the information and perspective helpful. With that, I would like to turn the call over to Mr. Scott Benz, our President and Chief Executive Officer.
spk06: Good morning, and thank you all for joining us today to discuss our first quarter 2024 results. I plan to share highlights from our first quarter performance and will also share updates on our key strategic priorities, while Luis will provide additional details on our financial results. The company reported first quarter adjusted EBITDA of $51.2 million, up 5% year-over-year. Global sales volume was up 1% year-over-year. Volume weakness in the agricultural market due to continued inventory destocking and lower phthalic and hydride volumes due to ongoing operational issues at our mill sale site mostly offset the strong recovery in volumes across our other core markets. Global sales volume, excluding the impact of agricultural and PA, was up 4%. Surfactants experienced double-digit volume growth in personal care, in oil field and markets, and with our distribution partners. As expected, Latin American surfactant volumes grew strong double digits as we recovered volumes in Mexico. First quarter sales volume in Mexico was a record. Overall, volumes in our global consumer laundry and cleaning and our institutional cleaning businesses have stabilized, and we believe the stocking has run its course. Within polymers, rigid and specialty polyols grew mid-single digits, while specialty products volume was up double digits. From a company perspective, margins were in line with expectations despite unfavorable product mix. Net sales in the first quarter of 2024 decreased 15% year-over-year, primarily due to lower selling prices that were mainly attributable to the pass-through of lower raw material costs and less favorable product mix. These lower selling prices were partially offset by a 1% increase in global sales volume, as mentioned above, and the favorable impact of foreign currency translations. We generated positive free cash flow of $11.4 million as capital expenditures returned to historical levels, and these results give us confidence that we will close 2024 with positive free cash flow. The company is on track to deliver our $50 million cost reduction goal for 2024 through disciplined efforts in supply chain and workforce productivity actions taken in the last quarter of 2023. We expect these reductions to help offset higher operating costs related to operational interruptions at our mill sale site and pre-commissioning expenses at our new alcoxylation facility in Pasadena, Texas. During the first quarter of 2024, the company paid $8.5 billion in dividends to shareholders. The company did not repurchase any company stock during the first three months of 2024 and has $125 million remaining under the share repurchase program authorized by our board of directors. Yesterday, our Board of Directors declared a quarterly cash dividend on Stefan's common stock of 37.5 cents per share, payable on June 14, 2024. Stefan has paid and increased its dividend for 56 consecutive years. With the volume performance in several of our end markets delivering strong growth, we remain confident in the strength and diversity of our business and its ability to generate cash that will allow us to continue to invest in our business and return cash to our shareholders. Luis will now share some details about our first quarter results.
spk12: Thank you, Scott. My comments will generally follow the slide presentation. Slide five shows the total company net income bridge for the first quarter compared to last year's first quarter and break down the decrease in adjusted net income. Because this is net income, the figure is not here on an after-tax basis. First quarter 2024 adjusted net income was $14.7 million, or $0.64 per diluted share, versus $16.4 million, or $0.71 per diluted share, for the first quarter of last year. The adjusted net income reduction was driven by a higher effective tax rate compared to 2023. We are projecting a higher effective tax rate for 2024 due to the anticipated disallowance of a GILTI reduction and foreign tax credit. resulting from the expected election of bonus depreciation for our Pasadena capital investments. Slide 6 shows the total company adjusted EBITDA bridge for the first quarter compared to last year's first quarter. Adjusted EBITDA was $51.2 million versus $48.7 million in the prior year, a 5% increase year-over-year. We will cover this segment in more detail, but to summarize, we deliver adjusted EBITDA growth in surfactants and specialty products, partially offset by global polymers. Lower corporate expenses also contributed to the adjusted EBITDA growth. Slide seven focuses on surfactant segment results. Surfactant net sales were $391 million for the quarter, a 16% decrease versus the prior year. Selling prices were down 18% primarily due to the pass-through of lower raw material costs, less favorable product mix, and competitive pricing pressures in Latin America and Europe. Volume was flat year over year. We delivered a strong double-digit growth in personal care from our low $14,000 investments and in the oil field and market. We also grew volume in the construction and industrial solution business and with our distribution partners. Latin America surfactant volume also grew a strong double digit as we continue recovering the business. This growth was offset by lower demand within the agricultural end market due to continued customer and channel inventory stocking. Foreign currency translation positively impacted net sales by 2%. Surfactant adjusted EBITDA for the quarter increased $1.5 million, or 4% versus the prior year. The increase was driven by the margin improvement that was partially offset by pre-operating expenses at the company's new acoxalation production facility being built in Pasadena, Texas, and expenses associated with operational interruptions at the Millsdale plant site. Excluding these one-time expenses, adjusted EBITDA grew double digits in the surfactant business. Now, on slide A, polymer net sales were $146 million for the quarter, a 10% decrease versus the prior year. selling prices decreased 14% primarily due to the bathroom of lower raw material costs. Volume increased 1% in the quarter, driven by a 4% increase in global rigid polyols and 7% increase in specialty polyols. This excellent volume growth was partially offset by lower PA volumes due to the milgel operational interruption. Rigid polyols experienced growth in all regions. Foreign currency translation positively impacted net sales by 3%. Polymer adjusted EBITDA decreased $1.9 million, or 10%, primarily due to the previous communicated higher expenses due to the mill cell operational issue. Excluding these one-time expenses, adjusted EBITDA grew in the polymers business. Finally, specialty product sales were $15 million for the quarter, a 33% decrease versus the prior year. Polymer was up double D versus the prior year, while adjusted EBITDA increased $1.9 million, or 49%. The increase in adjusted EBITDA was primarily due to both higher unit margins and volume within the MCT product line. Turning to slide nine, we continue making progress on our cash position. For the first quarter, cash from operation was $42 million, and free cash flow was positive at $11.4 million, up $176 million versus 2023. We continue optimizing our inventory levels, and we were able to reduce another $8 million. During the quarter, we deployed $38 million in CapEx investments and dividends. Now, on slide 10 and 11, Scott will update you on our strategic priorities and capital investments.
spk06: Thanks, Luis. I'll focus my comments on our cost initiatives, business strategy, and the progress of our major capital investments. The cost reduction program initiated last year, along with additional productivity and cost out initiatives underway in 2024, centered around improved operational performance across our supply chain network, are expected to deliver $50 million in pre-tax savings in 2024. As of the first quarter, the company was on track to deliver its $50 million cost out goal and recognized $18 million in pre-tax savings. This was largely offset by the incremental expenses related to the Millsdale operational issue, commissioning expenses in our new Pasadena site, higher operating expenses related to the new low 1,4-dioxane manufacturing process, and overall labor cost inflation. We are encouraged by the volume performance in several of our end markets delivering growth. Surfactants delivered strong volume growth in personal care, oil field, construction and industrial solution end markets, and with our distribution partners. Latin American surfactants delivered strong double-digit growth with record volumes in Mexico. Rigid and specialty polyols volume grew four and seven percent respectively, while specialty products volume was up double digits. Our large laundry and cleaning consumer and institutional cleaning businesses have stabilized, and we expect gradual and modest growth in the future. Our customers will always remain at the center of our strategy and innovation. Our longstanding Tier 1 customers value our technical capacity and the ability to manufacture and deliver quality products at the scale they need. We continue to diversify our customer base by expanding our reach to Tier 2 and Tier 3 customers who highly value the technical support and services that Steppen can provide. During the first quarter of 2024, we added approximately 400 new Tier 2 and Tier 3 customers, increasing the segment volumes versus the prior year. Our technical collaborations are increasingly focused on helping our customers make their product portfolio transition towards a more sustainable future, and we are happy to be on this journey with them. Our diversification strategy in Tier 2 and Tier 3 markets and functional markets, including agricultural and oilfield chemicals, continues to be a key priority for Stefan. Insulation remains a critical enabler of a more sustainable and energy-efficient world. our polymers business continues to focus on developing the next generation rigid polyol technologies that can increase the energy efficiency and cost performance of our customers' insulation products. Moving to slide 11, construction at our new alkoxylation production facility in Pasadena, Texas is approximately 90% complete, and we now expect the plant to start up in the fourth quarter of 2024 due to a contractor delay. The underlining alcoxylation business that supports the Pasadena investment, excluding the agricultural to stocking, continued its volume growth during the first quarter of 2024 at very attractive unit margins. After completing a three-year capital investment program last year, Stepin now has the largest installed low 1,4-doxane production capacity serving the North American merchant market. Our first quarter volumes grew strong double digits versus prior year, and volume should continue to ramp throughout the year as more customer and product qualifications are completed. As already reported in our February earnings call, our Millsdale site was impacted by a series of power disruptions combined with below freezing temperatures in January with the main impact to the thalic and hydride and polyol unit operations. All operations other than thalic and hydride have been in our back in production and we were able to minimize supply disruptions to our polyol customers through our production network. The PA unit experienced several restart challenges but has since been restarted and is producing product. In addition to the power weather interruption, we also experienced unplanned maintenance and operational issues with the Millsdale wastewater treatment plant. Our team has been actively addressing these issues through infrastructure and process improvements. These operational Issues impacted first quarter results primarily from higher maintenance and operational expense and higher tolling costs. We anticipate second quarter expenses related to these issues to be similar to the first quarter expenses. We anticipate to go back to normal and lower spending levels in the second half of the year. Looking forward, we believe sales volumes will continue to gradually improve due to the ongoing recovery in rigid polyols. and growth in surfactant volumes, including the expected recovery of the agricultural business in the second half of this year. We remain focused on delivering $50 million in pre-tax cost reductions to help offset inflationary pressures, the expenses associated with commissioning our new Pasadena alcoxylation assets, higher incentive-based compensation, and incremental expenses associated with the operational issues at Nosedale. Free cash flow should continue to improve versus prior year as we finish construction on our Pasadena investment and benefit from higher agricultural volumes in the second half of the year. Continued gradual growth in market volumes, improved operational performance, and our continued focus on cost reduction should position us to deliver full year adjusted EBITDA growth and positive free cash flow. We remain confident in our long-term growth and innovation initiatives. This concludes our prepared remarks. At this time, we would like to turn the call over for questions. DeeDee, please review the instructions for the question portion of today's call.
spk14: Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster.
spk00: And our first question comes from Vincent Anderson of Stiefel.
spk14: Your line is open.
spk09: Yeah. Good morning, gentlemen. Thanks. And apologies in advance if you've answered any of this. You guys are moving a little bit faster than I am today. But I wanted to start with the operating income and surfactants because it sounds like there was a lot of little issues here in the quarter, but the margins came in quite strong regardless. So Can you maybe just talk about what the big positives were, whether it was all fixed cost leverage or raw materials? And then kind of second to that, are there Tier 2, Tier 3, and oil field gains? Have those been enough to offset the mixed headwinds from agriculture?
spk12: Hi Vincent, this is Luis. Look, as we said in our prepared remarks, adjusted EBITDA for surfactant was slightly off 4% versus last year. And actually, if you exclude the one-time expenses that we had because of the disruption in Mildale, our adjusted EBITDA in surfactant is actually up double digits, which is a good testament of margin improvement. So you saw volumes flat in the In surfactants, overall flat with several places growing double digits, but overall volume flat, so the driver of the adjusted EBITDA growth is margin, despite the fact that ACT is a significant negative mix in the numbers. If you exclude the ACT-D stocking, our operating income, our adjusted EBITDA in this business will be up very, very strong double digits. So ACT is a negative income.
spk09: Okay. All right. Perfect. Thank you. I'm not sure exactly how to ask this one, but I appreciate that Millsdale is a very large, complex plant. It's one of your older plants. I'm trying to understand what opportunities there are maybe within your scheduled turnarounds that you would have an opportunity to really go deep into that plant and try to tie up some of these loose ends that seem to crop up. It feels like every year at this point, whether it's power or now wastewater, I'm just trying to kind of understand where that plant is in that kind of cycle of shorter-term maintenance needs and maybe longer-term projects that you haven't had an opportunity to address.
spk06: Yeah, great question, Vincent. First of all, we do have a long-term infrastructure reinvestment plan for that site. And we do follow and execute against that every year. The power disruptions that seem to be more frequent over the last three or four years, that's a real issue that we're working on with our external power providers. As you know, in this country, the energy infrastructure is aging and there is more reinvestment. So our primary focus is to improve the quality and reliability of the power that we get into our Millsdale site. And that's actively being worked on. With regards to our other infrastructure assets at the site, the wastewater treatment plants, I would say it's an unexpected maintenance outage. We do do turnarounds on all of our infrastructure assets. This one kind of creeped up unexpectedly. We're managing it and should be rectified here in the second quarter. So it is one of our older sites in our global network. It is very large and it's a main focus for us to continue to improve and then reinvest for improved reliability for our customers.
spk09: All right. That's excellent. Thank you. And just one last one. I'm just trying to get a feel for, you know, do your polyol volumes or at the very least your demand indications, given some of the disruptions this quarter, do you feel like they're tracking what you're seeing your customers put out there in terms of insulation volumes? Or is there maybe still a little bit of a disconnect in terms of how they're managing inventory or timing of these projects?
spk06: I think directionally the answer is yes. I think some of the customers that may have reported earlier, some of their growth may be a little disconnected from ours due to things that they're doing with their marketing programs. But overall, I think we're pleased that our volume is tracking. It's on a recovery path. There seems to be a lot of pent-up demand for re-roofing projects. And I think if we can clear some of the operational issues we have, you'll see our numbers track more closely to what you may be expecting from the customer base release.
spk12: And the growth in polymers was growth-based with all the regions growing and also specialty polymers growing plus 7%, which is pretty strong.
spk09: Excellent. All right. Thanks. That's all from me, guys.
spk00: Thank you. One moment for our next question.
spk14: And our next question comes from Mike Harrison of Seaport Research Partners. Your line is open.
spk17: Hi, good morning. Good morning, Mike.
spk03: Apologies if I missed this, but did you quantify the impact of the Millsdale outage in Q1 overall and how that was split between the polymers and surfactant segments?
spk12: Yeah, Mike, remember in February we said we were expecting around $5 million of pre-tax income. We included in the release, I know it's early, we included the exact number, $5.8 million was the impact and call it at half and half between the businesses. And as Scott put in his remark, we're expecting kind of the same in Q2.
spk03: All right, thank you for that. And then I was also curious, just on the price mix number, that minus 18% was quite a bit weaker than we were anticipating. I guess what I'm trying to understand is when do you expect those price mix headwinds to stabilize? Maybe, you know, how much of that 18% decline was price? How much was mix? And related to that, if you are expecting ag demand to pick back up and be stocking to run its course in that ag business in the second half, how much does mixed recovery from ag help that price mix number as we get into the second half?
spk12: Yeah, great question, Mike. As you said, 18%, of course, the majority of that is pricing, and ag is still a big negative impact into that number. But you saw our cost of goods sold also down $100 million despite the increases in overhead. So raw material prices are going down significantly, more so on a percentage basis, than the price reduction that you saw. So that's how we are improving margins in the three businesses when you look at dollars per pound.
spk06: And, Mike, I'll add, you know, we're coming off a record 2023 first quarter ag business, so that price mix is definitely impacted this year from the ag to stocking. And, yes, it will be a significant improvement in the second half when the ag recovery –
spk03: And I guess just to follow up on that, you know, can you give a little bit of color on what your customers in the ag business are saying right now? I'm just trying to get a better sense of what gives you confidence or how confident you are that those volumes are going to start to pick up in the ag business in the second half.
spk06: Yeah, Mike, I'd say from a customer perspective, it's a little bit of a mixed bag, whether it will start in Q3 or Q4. But what we have to remember is the world's demand for food and protein will always remain. So this inventory, once it gets through the stocking phase, the demand at the farmer level is still there. I think it's a matter of when, not if. And I'd say right now there's probably a 50-50 mix of Q3 versus Q4.
spk03: All right. And then the last question for me is just in terms of the outlook, you're pointing to adjusted EBITDA growth versus last year. Obviously, last year was unusually weak. But looking at where you were in the first quarter, this $51 million EBITDA number and presumably would have been $6 million higher without the Millsdale outage. Should we be modeling improvement from that level in Q2 and then further improvement in Q3 as we get past the Millsdale issues? I guess just any additional color you're willing to provide on the earnings cadence from here, I think, would be helpful, given there are a lot of moving pieces in place.
spk12: Yeah, Mike, and you know that we don't provide formal guidance for the quarter or for a year, and that's why we are trying to provide some perspective on the expenses that we foresee in Q2. So you can model that in your second quarter. And then, of course, we all expect some improvement in the second half because of the ag recovery. I mean, we cannot hide that. I mean, we're saying we are expecting the recovery of ag, and ag is a good business for us. And, of course, we'll have a positive impact in our EBITDA in the second half versus the first half.
spk02: All right, that's helpful. Thank you.
spk14: Thank you. One moment for our next question. And our next question comes from Dave Storms of StoneGate. Your line is open.
spk08: Good morning. Good morning, Dave. Good morning. Just hoping we could touch on Latin America for a second. Great to see volumes coming up there. Can we expect pricing to follow, or is there still more focus on defending and capturing market share there?
spk06: Yeah, great question. Yeah, Dave, our priority was to recover the volumes. If you remember, we talked about competitive imports in the prior quarters. Our goal was to recover the share. So that remains our priority. There's hope over time that pricing will improve, but right now it's reestablishing the B-Channel.
spk08: Understood. Very helpful. And then just one more for me. On the customer acquisition environment, great to see that you picked up some more Tier 2 and Tier 3 customers. What is the contact-to-contract cycle looking like there? Is that improving, and how does that compare to
spk07: you know, trying to pick up obviously more tier one customers as well.
spk06: You know, the tier two, tier three customers, those tend to be the smaller customers around the world from a contracted basis that's really not contracted business. It's more transactional type of relationships, but You know, I think where we differentiate ourselves is the technical service. So when we help these customers put new formulations on the shelf, there is a sense of loyalty. But, you know, there's nothing that you can, you know, put under a contract umbrella saying that that's a fully stabilized business. But, you know, we had record volumes in Q1 within that customer segment, which we're pretty pleased with those results.
spk08: Understood. Thank you for taking my questions, and good luck in Q2. Thanks.
spk14: Thank you. At this time, I'd like to turn it back to Scott Behrens for closing remarks.
spk06: Thank you very much for joining us on today's call. We appreciate your interest in ownership and step in company, and please have a great day.
spk14: This concludes today's conference call. Thank you for participating, and you may now disconnect.
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